Google Probe, Funds Register, Rothesay Typo: Compliance

June 27 (Bloomberg) -- New York and California are in the
early stages of an antitrust investigation of Google Inc., along
with Texas and Ohio, said a person with knowledge of the matter
who didn’t want to be identified because the probe isn’t public.

Officials in Texas and at the European Commission have
started investigations into Google’s dominance of the Internet
search industry. Ohio Attorney General Mike DeWine said in March
his office was “evaluating the facts” to determine whether it
wanted to conduct a probe.

Google, operator of the world’s largest search engine, is
coming under increasing scrutiny by regulators in the U.S. and
Europe for some of its business practices. Mistique Cano, a
spokeswoman for Mountain View, California-based Google, declined
to comment June 23.

Lynda Gledhill, a spokeswoman for California Attorney
General Kamala Harris, and Lauren Passalacqua, a spokeswoman for
New York Attorney General Eric Schneiderman, declined to
comment.

“The Ohio Attorney General’s Office cannot confirm or deny
the status of any possible investigation,” Dan Tierney, a
spokesman, said June 23 in an e-mail.

Oklahoma Attorney General E. Scott Pruitt said in May that
he may join other states and federal agencies in probing
Google’s dominance. Diane Clay, a spokeswoman for Pruitt, said
the attorney general’s office was looking at both consumer
protection and competition issues.

The investigation by California and New York were reported
earlier by the Financial Times.

Separately, Google said June 24 that the U.S. Federal Trade
Commission has begun a review of its business practices.

“We respect the FTC’s process and will be working with
them (as we have with other agencies) over the coming months to
answer questions about Google and our services,” Amit Singhal,
a Google fellow, said in a blog. He also said it’s “unclear
exactly what the FTC’s concerns are.”

For more, click here.

Compliance Power

Retail Banks’ Behavior to Be Focus of New Regulator, FSA Says

The agency replacing the U.K.’s financial regulator will
intervene earlier to prevent the introduction of risky products
and use enforcement powers to study banks’ conduct in selling
retail investments.

The Financial Conduct Authority, which is due to start work
by 2013, will “aim to protect and enhance confidence in the
firms and markets it regulates,” the Financial Services
Authority said in a report on its website today.

The FSA, the U.K.’s financial regulator, will be abolished
by the end of 2012 and replaced by at least two new authorities
as part of an overhaul of financial supervision. The Financial
Conduct Authority will have new powers to ban risky financial
products or intervene in how they are marketed and to publish
information about disciplinary investigations earlier.

Separately, under proposals for the Financial Conduct
Authority, U.K. regulators may get the power to compel public
companies to hire external experts for scrutiny of controls or
governance if there are questions about companies’ listings or
transactions, the Financial Times reported.

Under proposals in the draft financial reform bill, that
power would be vested in the planned authority after the
existing Financial Services Authority is split up in 2013, the
newspaper said.

European Banks May Have to Raise More Capital After Basel

Regulators meeting in Basel this weekend agreed to make as
many as 30 of the world’s largest, or systemically important,
banks hold as much as 2.5 percentage points more capital than
the 7 percent core Tier 1 capital required.

They also blocked European banks’ requests to use hybrid
capital, such as contingent convertible bonds, to meet the
target. The biggest banks will use mostly retained earnings and
ordinary shares.

Lenders had lobbied against the extra capital requirements,
saying they risked stunting the global economic recovery and
some had sought to avoid being categorized as systemically
important. The decision marks a loss for European banks that are
grappling with the region’s debt crisis and had sought to use
hybrid capital to meet regulators’ extra requirements.

For a related story on the how the Bank for International
Settlements is pushing banks to raise capital before the rules
take effect, click here. To read more about the Basel
regulators’ decision to rule out contingent convertibles for
now, click here.

The decision was part of the Basel Committee’s overhaul of
rules on how much capital the world’s largest banks should hold
so they don’t collapse during a financial crisis. The proposals
will be reviewed by the Financial Stability Board and then be
issued for public comment, the Basel group said. The FSB, which
brings together finance ministry officials, central bank
governors and regulators from the Group of 20 countries, is
leading efforts to rein in systemically important banks.

For more, click here.

U.K. Gives Consumer Bodies Power Over Toxic Financial Products

Chancellor of the Exchequer George Osborne will give
consumer protection bodies the right to flag ‘toxic’ financial
products with regulators to prevent banks selling services to
consumers that they don’t need.

Consumer groups such as Which? will be given the power to
raise complaints with the financial regulator when they see
evidence of products that are improperly sold or harm consumers.
The Treasury said it expects the change will make the system
more nimble and responsive to the needs of consumers.

The effort comes after HSBC Holdings Plc, Royal Bank of
Scotland Group Plc and Barclays Plc in May set aside about $3.4
billion for customers improperly sold personal-loan insurance.
The powers are part of the biggest financial regulatory overhaul
since 1997.

Consumer groups already have some powers to raise
competition complaints with the Office of Fair Trading. The
Financial Conduct Authority, whose powers will be formalized
once the Financial Regulation Bill is passed next year, will be
forced to investigate similar complaints.

Compliance Action

Hedge Funds Ahead of Schedule on SEC Registration Mandate

Hedge funds are a step ahead of the first mandatory
registration rule from the U.S. Securities and Exchange
Commission as the typically secretive industry has opened its
books to regulators since the 2008 financial crisis.

What could have been a difficult adjustment to an
unprecedented disclosure system, set to take effect March 30,
will come to an industry already accustomed to some SEC
oversight as hedge funds and private-equity firms have stepped
forward to register with regulators.

Some of the largest hedge-fund firms already are SEC-registered, including Paulson & Co., Renaissance Technologies
LLC, Bridgewater Associates LP and AQR Capital Management LLC.
The industry leapt into SEC supervision as major investors,
spooked by the financial crisis, looked for regulated venues for
their money.

In the past three years, institutional clients have become
the majority among hedge-fund investors, making up 61 percent of
fund assets, according to London-based research firm Preqin Ltd.

Among the top 5 percent of SEC-registered managers, the
average number of funds per firm is 79, the agency said in
documents discussing the rule. Those who have resisted SEC
registration until now will generally be smaller firms because
they haven’t been able to run more than 14 funds in order to use
the exemption, according to the SEC.

Goldman Unit Misstates $242 Billion of Pension Derivatives

The bank overstated the position by a factor of a thousand
in its annual return to the Financial Services Authority, signed
by the unit’s chief executive officer, Addy Loudiadis, and
audited by PricewaterhouseCoopers LLP. The unit has 151 million
pounds of inflation and interest-rate swaps outstanding,
spokeswoman Fiona Laffan said by e-mail June 24. The firm told
the FSA about the typographical error after filing in March and
wasn’t required to resubmit it, Laffan said. PwC declined to
comment.

Goldman, which set up Rothesay in 2007, manages about 4.3
billion pounds of pensions liabilities for companies including
British Airways and RSA Insurance Group Plc. Firms such as
Rothesay promise to pay pensions if retirees live beyond a
certain age. They typically receive a portion of the pension
plan’s assets in return and try to hedge the risk they take on
with derivatives.

Rothesay has total capital of 161 million pounds, 350
percent more than the regulatory minimum required by the FSA,
according to the filing.

Zimbabwe Plans Diamond Rules to Boost Transparency, News Says

The so-called Diamond Act will create a commissioner to
oversee the diamond mines, ensure compliance with international
standards and specify the role of state security, the Harare-based newspaper said.

While the law will give the state exclusive rights to mine
diamonds in Zimbabwe, joint-ventures will be allowed, the
newspaper said. In 2008, more than 200 people were killed when
security forces took over the Marange diamond fields in
Zimbabwe, according to a report by Human Rights Watch.

Courts

U.S. Seeks Life Sentence for Ex-Taylor Bean Chairman Farkas

Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker
Mortgage Corp., should be sentenced to life in prison for
leading a $3 billion fraud involving fake mortgage assets, U.S.
prosecutors told a judge in Virginia.

In a filing in Alexandria made public June 24, prosecutors
asked U.S. District Judge Leonie Brinkema to order Farkas to
prison for 385 years or “a period of years that would ensure
that Farkas will remain in prison for life.” Farkas, 58, is to
be sentenced June 30.

A federal jury convicted Farkas in April of 14 counts of
conspiracy and bank, wire and securities fraud after a two-week
trial. Prosecutors said Farkas orchestrated one of the largest
and longest-running bank frauds in the U.S., which duped some of
the country’s largest financial institutions, targeted the
federal bank bailout program and contributed to the failures of
Taylor Bean and Montgomery, Alabama-based Colonial Bank. Farkas
used the fraud to fuel “his lifestyle of ostentatious wealth,”
prosecutors said in the filing.

The case is U.S. v. Farkas, 10-cr-00200, U.S. District
Court, Eastern District of Virginia (Alexandria).

Interviews/Speeches

Gurria Says Private Involvement in Greek Aid ‘Critical’

Angel Gurria, secretary-general of the Organization for
Economic Cooperation and Development, said it’s “critical”
that private investors are involved in an aid package for Greece
.

“Greece needs funding in order to continue to operate
normally, to recover its growth in the future,” and “needs
refinancing of its maturing debt,” Gurria told Bloomberg
Television’s Andrea Catherwood in an interview from Paris June
24. “Substantially all the creditors have to participate.”

European leaders are pushing for private investors to share
the burden of financing a second rescue for Greece, which
remains shut out of markets a year after its 110 billion-euro
($156 billion) bailout. The European Central Bank is opposed to
any solution that could spark a default.

“The creditors will be better off because today a
disorderly unraveling of this situation would affect the
creditors first and foremost, beyond the people of Greece,”
Gurria said. “The creditors will be benefited by contributing
to an orderly solution.”

Rating Firms Must Obey EU Rules, Michelbach Tells Handelsblatt

Standard & Poor’s Financial Services LLC, Moody’s Investors
Service Inc. and Fitch Ratings Ltd. should be kept out of the
European market if they fail to meet European Union requirements
in time, a lawmaker from Chancellor Angela Merkel’s political
bloc told Handelsblatt.

The rating companies’ methods lack transparency and are
arbitrary, the newspaper cited Hans Michelbach, a senior finance
committee representative for Merkel’s Christian Democratic Union
and its Christian Social Union sister party, as saying.

Repeated sovereign downgrades even after countries have
taken measures to restore their finances give reason to doubt
the quality of rating decisions, Michelbach told the newspaper.
There is no room in Europe for “dubious” rating companies,
Handelsblatt cited him as saying.

The European Central Bank’s reliance on ratings by U.S.
companies is untenable, Michelbach said, according to the
newspaper.

Daniel Says Asian Banking ‘More Entrenched’ in Economies

Emmanuel Daniel, president of The Asian Banker, which
provides research to financial services companies, talked about
the health of Asia’s banking system and the concept of banks
being “too big to fail.”

Comings and Goings

Draghi Dodges French Qualms, Wins ECB Job as EU Tackles Debt

Italy’s Mario Draghi dodged last-minute French objections
to win the European Central Bank presidency in a dispute that
threatened to overshadow efforts to prevent a Greek default.

Draghi’s appointment June 24 at the end of a two-day
European Union summit followed a pledge by euro leaders June 23
to do whatever it takes to support Greece as long as Prime
Minister George Papandreou pushes through a package of deficit
cuts.

National rivalries flared as French President Nicolas
Sarkozy held up the confirmation of Draghi, 63, until another
Italian on the ECB board, Lorenzo Bini Smaghi, offered to quit
to make way for a Frenchman. Leaders rejected questions that
they were interfering with the rate setter’s autonomy.

The personality conflicts added to tensions between
political leaders and the nominally independent ECB, which has
prodded euro governments to do more on Greece and tighten the
deficit rules that failed to prevent the crisis.

Draghi, Italy’s top central banker since 2005, won the
European Parliament’s non-binding endorsement June 23. Draghi is
also chairman of the Financial Stability Board, set up by the
Group of 20 to oversee standards to strengthen global
regulation.

For more, click here.

Lagarde Vows Neutrality Toward Europe as She Seeks Top IMF Job

French Finance Minister Christine Lagarde, vying for the
leadership of the International Monetary Fund, pledged to be
impartial toward European nations seeking aid and to give
emerging economies greater influence.

“I will not shrink from the necessary candor and toughness
in my discussions with the European leaders,” Lagarde said in a
statement in Washington delivered in a meeting June 23 with IMF
directors. “I am not here to represent the interest of any
given region of the world, but rather the entire membership.”

Lagarde, 55, has the backing of European nations that have
31 percent of the voting shares at the IMF and has also gathered
support among emerging countries from Egypt to Indonesia. Her
sole rival, Mexican central bank Governor Agustin Carstens,
claims the backing of 12 Latin American nations while failing to
garner endorsements from Argentina or Brazil. The IMF board has
said it will meet June 28 to assess the two candidates and
repeated it aims to make a choice by June 30.

For more, click here.

BOE’s King to Chair Basel Board; Ingves Replaces Wellink

The Bank of International Settlements appointed Bank of
England Governor Mervyn King to chair the Basel committee’s
oversight board.

He will succeed European Central Bank President Jean-Claude
Trichet and assume the position on Nov. 1, the BIS said in a
press release June 25.

The announcement came on the same day the Basel Committee
on Banking Supervision said banks deemed too big to fail must
hold as much as 2.5 percentage points in additional capital as
part of efforts to prevent another financial crisis.

The BIS also said Swedish central bank Governor Stefan
Ingves will succeed European Central Bank Governing Council
member Nout Wellink as the new chairman of the committee on
banking supervision. Wellink will step down as the Dutch central
bank governor on July 1.